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The Takeovers Panel ruled certain “warehousing” arrangements in breach of the Takeovers Code

The SFC announced that the Takeovers and Mergers Panel (Takeovers Panel) had found that the chairman of Chevalier Group, Mr Chow Yei Ching (Mr Chow), his son, Mr Oscar Chow Vee Tsung, and Mr Joseph Leung Wing Kong, had breached the Codes on Takeovers and Mergers and Share Buy-backs (Takeovers Code) by acting in concert with the late Ms Nina Kung to obtain or consolidate control of ENM Holdings Limited (ENM) through acquisition of voting rights, and failing to make a mandatory general offer under the Takeovers Code.

At the relevant time, Ms Kung was the largest shareholder of ENM, holding about 34.64% shareholding interest in ENM. It was alleged that, between 2000 and 2002, Mr Chow acquired a total of 160 million shares of ENM (approximately 9.69% of ENM’s issued share capital) on Ms Kung’s behalf and at her request. Mr Chow paid for the purchase of the ENM shares and was subsequently reimbursed by Ms Kung. The reimbursement was handled by Mr Oscar Chow and Mr Leung. This type of arrangement is commonly known as “warehousing”.

Mr Chow held the ENM shares under four British Virgin Island (BVI) companies he owned through bearer shares until December 2009. To comply with changes to BVI law requiring greater transparency in the ownership of bearer shares, Mr Chow arranged for the ownership of the 160 million ENM shares to be split equally between one of his daughters and Mr Oscar Chow in December 2009.

The Takeovers Code treats persons acting in concert as being the equivalent of a single person and aggregates their shareholdings. As such, the Takeovers Executive alleged that Mr Chow’s acquisitions of the 160 million ENM shares increased the collective shareholding of the concert group in ENM from 34.64% to 44.33% thereby triggering a mandatory general offer obligation under the Takeovers Code. However, none of the share acquisitions in ENM by Mr Chow on Ms Kung’s behalf was publicly disclosed and remained undisclosed for a protracted period.

The Takeovers Panel has yet to issue its written reasons.

A copy of the SFC’s press release can be downloaded via the following link: